Two years from now, Indiana’s Health Information Technology Extension Center (I-HITEC), led by Purdue’s HealthcareTAP with support from Engagement and RCHE, will have assisted 2,200 Indiana providers in adopting and using electronic health records. The program is funded by a $12 million grant from the Office of the National Coordinator.

In 2004, President Bush set a goal of having most Americans using electronic health records by 2014. Five years later, as part of theAmerican Recovery and Reinvestment Act, the 2014 date became a mandate. Initially, providers using electronic records, which typically include e-prescribing, would receive reimbursement incentives. By 2014, the incentives would be replaced by penalties for those who did not use electronic records.

The I-HITEC center was funded to help Indiana providers transition to electronic records. The center is focusing on priority provider groups ­— primary care practices with fewer than 10 providers, public or critical access hospitals, and providers serving the un- or underinsured, underserved, or at-risk populations. Center staff will identify and recommend electronic health record software that meets federal standards for a certified EHR. They will also help providers get the software up and running.

I-HITEC is a milestone-based program, meaning that there are several milestones providers need to hit for the adoption to be considered successful. The first milestone is signing a technical assistance agreement. The second is being able to document that providers are ‘live’ on a certified electronic health record and have active quality reporting and electronic prescribing. The final milestone is meeting the meaningful use criteria established by the Secretary of Health & Human Services.

Meaningful use criteria are still being finalized. “Meaningful use says that it’s not enough to just have an EHR or to even to use it. You must show that you are using it in a way that improves the health outcomes of your patients,” says Steve Witz, director of RCHE.

Hospital supply chains are very different from consumer products, which is what makes them so interesting to Leroy B. Schwarz, professor in the Krannert School of Management. “The most unusual thing about them is the role played by GPOs (group purchasing organizations),” he says. In procuring supplies, hospitals can negotiate directly with the manufacturer, negotiate as a group of hospitals, or work through a group purchasing organization, which negotiates with manufacturers on behalf of its members. Because they represent many hospitals, GPOs say they can negotiate lower prices than a hospital negotiating alone.

But the purchasing power comes with its own share of criticisms, he says. GPOs charge manufacturers a contract administration fee, which is capped by the Social Security Act at three percent of the cost of all of the manufacturer’s sales on contract. “Since a GPO is supposed to negotiate the lowest possible price for its members, there is a conflict of interest; e.g. the lower the price a GPO negotiates, the lower the contract administration fee it receives,” says Schwarz. This fee is very controversial, he says. A second criticism is that manufacturers say that since the fees increase their cost of doing business, everyone pays more for their products, whether they use a GPO or not. The final criticism is that some believe that GPOs hinder innovation. “If a GPO has a contract for some product and a new company develops a competitive product, then the new company, in order to sell its products, first has to sell the GPO. However, if the GPO already has a contract with the competition, then it will be less interested in the new company,” Schwarz says.

Schwarz had heard the criticisms of group purchasing organizations, and developed a project to determine if they were true. Using mathematical models and running various purchasing scenarios, Schwarz and his colleagues determined that some of the criticisms are valid. GPOs do reduce the incentive to innovate by reducing the premium for a new, competing product. However, they’re still beneficial to the overall healthcare supply chain in terms of cost, he says.

“They reduce overall costs and increase competition, even for hospitals that don’t use them, because they put pressure on the manufacturer to lower prices.” Other research has shown that GPOs are not unequivocally the lowest price and that direct negotiations with the manufacturer can sometimes yield lower prices. Hospitals using GPOs typically report lower internal administrative costs.

Schwarz hopes that the results can help hospitals evaluate purchasing options. “Many hospitals believe they are getting the lowest prices when they buy through a GPO, but they could, on a case-by-case basis, be better off buying direct,” he says. The research team is looking at other questions related to GPOs, including how the size of the hospital or provider group affects the level of benefit they derive from using a GPO.

The project was funded by a seed grant from the Regenstrief Center for Healthcare Engineering.